The Visa Crisis
With all of the buzz around the adult Internet world focusing on the new Visa regulations, I decided to put together an article that will attempt to explain what the new regulations are, how they will affect Webmasters and what smaller and foreign webmasters that are affected most can do to stay afloat. First things first, Visa has created a new category of regulations for Internet payment service providers (IPSP) that are “high risk”. The definition of an IPSP according to a joint statement issued by Ibill, CCbill, and Epoch, “is a company that provides a broad array of services and has financial responsibility and liability for merchant accounts whereby webmasters are able to process and settle Internet transactions”. VISA’s new regulations stipulate that they will now require that these IPSP’s only accept transactions from Sponsored Merchants, who are first approved by Visa. To become a Sponsored Merchant with a US based third party processor, you must submit your registration to your IPSP that includes, but is not limited to:
1. Your company name
2. Your U.S. based business address
3. U.S. based corporate tax ID # or U.S. Social Security #
4. U.S. based bank account #
5. URL listings
6. Dollar volumes
Along with your registration information, you must also submit a registration fee of $750 (per company, not URL), $500 of which will go to Visa, the balance serving as an administrative fee to be shared between the banks and the IPSP. There will also be a recurring annual registration fee of $375. The fee is due by November 15th, 2002, and after that date, the IPSP will only be allowed to process VISA transactions for Sponsored Merchants who have completed their registration and paid their fee. Webmasters will also have to remember that they will have to pay this fee to each third party processor or IPSP that they use to process their VISA transactions. On top of this, VISA will be able to use it’s discretion to terminate any webmaster that are out of compliance on chargeback ratios, according to VISA’s review. Lastly, in order to be a Sponsored Merchant under VISA’s regulations, you will be required to remove any Mastercard logos from your site.
So, who does these new VISA regulations affect the most? It would seem that foreign webmasters (those outside of the U.S.) would be affected the most by these new changes, and yes this includes Canada. VISA stipulates that the acquiring bank that the IPSP uses to process VISA transactions and the Webmaster that is using the IPSP have to reside in the same country. What this means is that any business or website operating outside of the United States and using a third party processor or IPSP located in the U.S. will have to incorporate their business inside the United States in order to be accepted by Visa as a sponsored merchant under the new regulations. Due to the fact that it can be a costly and time-consuming effort to incorporate and establish a presence in the U.S., not to mention the huge tax issues, many smaller webmasters will be left out in the cold. On top of that, to get status as a registered US corporation by the deadline of November 1st may prove to be very difficult. Another option, not necessarily an easy one, which webmasters do have is to set up their own merchant account. For those of you outside of the United States, this proves to be a very difficult endeavor. In many foreign countries, especially Canada, companies that process online transactions that are considered to be “high risk” find getting merchant accounts next to impossible.
There may be a little light at the end of the tunnel concerning this issue though. There is a solution in which the responsibility lies on the IPSP, and that is that they can set up additional banks for VISA processing in other countries. While this may be a viable solution for the IPSP in some of the lenient countries of the world, it will prove very difficult to do in the countries like Canada with stricter banking laws when it comes to “high risk” entities. Only time will tell which route the IPSP’s will take in order to satisfy their international clients.
Who else does this affect? Many smaller webmasters who run maybe one site and make just enough to get by, will be largely affected by these regulations. To the big corporations in the industry, the fees are next to nothing. To many webmasters, paying $750 to each IPSP that they are using is enough to put them out of business. I have seen many of the smaller guys talk on the various message boards about switching to processors or IPSP’s that are somehow exempt from these VISA regulations because they are run offshore with offshore bank accounts, etc. What these guys fail to realize is that they will lose their rebills with their current IPSP and for a smaller Webmaster this is most likely a large chunk of their income.
What these new regulations will do is essentially weed out many of the smaller guys in the industry, paving the way for a takeover of the major corporations again. What we will essentially see happen in the industry will closely resemble Charles Darwin’s theory of Natural Selection, whereby to stay alive in this industry will mean survival of the fittest.
I will try to keep patrons of Webmaster Vault abreast of the developing VISA situation through regular articles, as more information becomes available and more issues come to the surface.
